For The Record: Does This Seem Right?

Monday, Dec. 18, 2006 | “Certainty of Death – Small Chance Of Success – What Are We Waiting For?”

Judge Jeffrey Barton issued his 38-page ruling. There’s lots of issues, on which I will not weigh in. But here’s a couple (nowhere near comprehensive) observations on his opinion:

Can Insiders Create Massive Municipal Debt?: The judge struggled with the effect of the various procedural events leading up to the deficits. That’s because our city’s insiders (city managers and politicians, retirement system and the municipal unions) previously acted (essentially in secret) in a way that horribly compromised the future of the city, all its future businesses, public facilities and families – both in the “benefits for underfunding” deals, and in the “settlements” of the cases filed thereafter.

But to me, the basic legal element presented is not centered there. The nominal question was, can the deficits be reversed after so many various events, deals – lawsuits and settlements, have taken place? But, the real question here has always been whether these insiders can – under any scenario – create massive unfunded municipal deficits which ultimately would have to be paid for by you, the taxpayers – and certainly not an insider? Certainly, if they can, they will – that’s the nature of those parties. But, I always thought the answer at the municipal level was no. Massive unfunded and unbudgeted municipal deficits may not be created. That’s because, even separate from the 1090 conflict-of-interest issues which create the exact same extraordinary consequence, the law of this state and city legally preclude the creation of massive unfunded and unbudgeted deficits (even “secret” ones) by legally making them “void ab initio,” that’s void (read, “non-existent”) from the very start. You don’t need to do anything to make them “void.” They just are as a matter of law. The secret unfunded and unbudgeted deficits never exist because the law, as I previously understood it, doesn’t allow them to come into existence in the first place.

“Void” vs. “Voidable“: This unusual consequence made sense because it’s the only way to protect the public, I thought, because a public – busy with their families, jobs and lives – can’t be responsible for monitoring the Machiavelli-like movements of government types that speak in tongues and shift things quietly without causing a lot of notice when it benefits them. That’s why the application of the “void” consequence is automatic. That’s the difference between “void” (not savable) and “voidable” (savable). “Voidable” are obligations that can be reversed/undone under certain circumstances if certain actions are taken. But, “void” obligations are just plain out. Being legally “void,” the massive deficits are not there because they can’t be there. And, prior to this pension case it was always the burden of the vendor (in this case, the unions) not the city (perhaps more correctly here, its taxpayers) to make certain that such deficits were not created by contracts or similar arrangements, because the consequences of creating unfunded and unbudgeted deficits fell automatically, and exclusively, on the vendor (here, the unions).
Looks Like the Previously Void Deficits Are Becoming Voidable: Judge Barton’s opinion suggests to the contrary, perhaps indirectly, that there is an “exception” to the “void” rule. That would be where the unfunded and unbudgeted debt is secretly created, like with MP 2, but is somehow blessed after the fact as a result of a subsequently filed legal action related to a union contract, like with the Gleason settlement, even though it does not in any sense address the illegally created debt at all. This decision now suggests that if the city doesn’t contest the illegal debt creation in those subsequently filed unrelated cases (like Gleason), and a settlement occurs in those cases – even if they in no way relate to the 1090 or debt limitation issues – it would then “validate” in a sense these massive deficits that had otherwise legally not been there before. This is not like resurrecting Lazarus from the dead (pardon the scriptural analogy). Raising Lazarus would be easy by comparison. Here, there is no Lazarus to begin with because he never existed in the first place. But, by going through this odd legal “scheme/process” on unrelated issues, Lazarus is both created, and given a life he never previously had. Quite a stunt.
But, Would the Deficits Stay Void If There Were No Later Unrelated Settlements?: Now, in this ruling, it’s quite unclear if the illegal, “void” deficits would remain void if no one got around to filing and settling an unrelated civil law suit. It seems that if the contracts and agreements creating the massive void deficits are not followed by a fortuitously filed and settled subsequent civil litigation case, it would not get the subsequent case blessing suggested by this ruling, and so it would remain void by operation of law.
Does That Seem Right?: You don’t need to be a lawyer to appreciate what a very odd result that would be. The creation/validity of BILLIONS of dollars of public debt could hereafter rest, not on what was done in the creation of those massive deficits, but rather on the serendipitous occurrences of subsequently filed non-related litigations (i.e. Gleason) filed and settled after the legally void debt was created.
Can It Be This Easy?: If this is the case there is an “exception” to the California State Constitution and San Diego city debt limitation laws that literally consumes the rule itself, a methodology for validating massive unfunded and unbudgeted deficits. And, it’s relatively easy. It would become a “program” for accomplishing this result over and over. Every illegal deficit creating action could be promptly followed by the filing of a non-related civil litigation matter, likely managed by the exact same insiders that created the void deficits (just like with Gleason) in the first place. They will be promptly settled. Voila! Massive BILLION dollar deficits are valid. You’ll wake up one morning and your city will be broke. Again.
It Definitely Would Not Be Hard: Lawyers have a saying – it goes like this, “the law is what works.” It doesn’t matter what the written law says. If you can do otherwise and get away with it in court, that is the law. Here, it will not matter what the State Constitution or City Charter says. If you can create massive hidden debt that city taxpayers must ultimately pay by going through this relatively simple two step process – 1)increase benefits in return for underfunding; and, 2) then have a friendly lawsuit settlement orchestrated by the same folks that originally cooked the original cake – well, that will become the norm. It will happen like this again. Why? Because it’s worth billions of dollars.
Is This A “Law” Thing or a “Legislative” Thing?: Second. In his opinion, Judge Barton correctly considered the question of what issues were “justiciable” (i.e. to be decided by the courts), and which were inherently “legislative” (i.e. to be left to the politicians). This is an important and sensitive issue for courts, both because of a general sensitivity to “separation of powers” issues, and because politics is, I think, viewed by courts generally as a place naturally inclined to a somewhat more, how shall I say this pleasantly…freewheeling, inelegant and inexact method of behavior. Certainly, a far less Calvinist approach than the courts embrace in the search for truth, right…and that sort of thing. For purposes of general court integrity, there are things that go on in the “legislative” arena (like decisions on how to spend public money) that courts want dearly to avoid if at all possible. And because state court judges are periodically “elected” by the public (as opposed to federal judges that are not), making enemies of politically sophisticated entities is not desired. When it comes to truly “political” shenanigans, the general sense is, if the public doesn’t like it – vote the bums out. Don’t bring it over here. And, in fairness, I can’t blame the Courts for thinking like that, especially in this city.
Maybe Trying Too Hard: It may be that Judge Barton’s well meaning decision here has turned that balancing process on its head a bit, and perhaps inadvertently achieved its exact opposite result. Here’s why. If the massive deficits were initially created illegally, as certainly is likely the case, that is a “justiciable” issue because there are laws directly on point – they say you can’t do that. That entirely “legal” issue can’t be resolved anywhere else. It’s the law of the state and city. And, good news, it should be the end of the required legal analysis and decision – the “justiciable” side of the case.
The Deficits May Wind Up Being Court Created: If those deficits violate 1090 or the debt limitation laws, they are void, at least under the law as it existed before this decision. But, in this ruling, life seems blown into obligations that were not even there (because they were initially void) through a “subsequent settlements” theory. Oddly, this would mean the Court creates the deficits – a uniquely legislative power and something state courts are normally not inclined to do. If Judge Barton’s opinion went only to the basic legal issue, “were there deficits created in violation of 1090 and/or the state/city debt limitation protection laws,” and the court concluded yes, the “legal” side of the case is over. The illegally created benefits would be gone because they are void, and the “backfill” of any of those amounts ruled illegal could, and would, have to be dealt with by the legislative branch, here the City Council, which can still grant whatever amounts of the city treasury they desire so long as consistent with the law. That’s how it should be. But, if the deficits were initially “void,” as I believe is the case, then now it will be the court creating the deficits that will result from this case. A completely unexpected result.
Is Everybody Here?: Third. It troubled Judge Barton that everyone that could be “affected” by his rulings was not a named party and technically not “before the court.”
This Would Not Be a Problem If We Were You Know Where: I don’t see why the Superior Court would be uncomfortable ruling with respect to the parties that are before him – just doing that would solve a lot. After all, if the deficits are illegal as to the parties before the court, the others can at least learn from that experience and judge their entitlements accordingly. But, I can’t help myself, sorry. I have to remind all that a Chapter 9 case has universal jurisdiction. Meaning, all persons with claims, no matter what type and no matter where you are, would be before the federal court. I know some of you hate Chapter 9 – and we are not going to file for Chapter 9 for the reasons you will read below. But, all these jurisdiction issues go away in Federal Bankruptcy Court. To attempt to fix this problem in a series of Superior Court cases will prove to be another example of this city doing everything the hard (hardest?) way, and most expensive way. And, that’s for a reason.
The Case May Have to Get a Bit Bigger: But, in fairness to the city, if everybody that is “affected” in a “1090” or “debt-limitation” case must be a named party or formally joined for the Superior Court to feel comfortable ruling on theses matters it will be big tent. Why? Because we are ALL automatically affected. If the court rules against the city and fails to “void” the illegal deficits (or simply avoids the issue) we are all massively affected. Every division of public service in the city is wrecked. Every taxpayer will feel the spear, every thing and everybody not protected by the ruling on the issue, if one is required, is affected by not making the ruling. While we would preferably be doing this in a forum where all the parties are “before the court” (see item above), we aren’t for a variety of reasons. That doesn’t mean the Superior Court of this state should duck the issues. It means too much to the life of this city.
I’ll Gladly Pay You Tuesday…: There is more to all this than just our being broke. Allowing San Diego to saddle future generations of children for these sneaky, massive debts “monetizes” a current financial problem. In essence, it “creates money” that isn’t there. This is so rotten to your kids, if you knew it was being done, you would hang those trying to do it. And, if you can pass billions off into the future here in San Diego, every politician in every California city will want do the same? It is, after all, worth BILLIONS in non-existent revenues. It is the simplest formula for disaster ever.
Say Yes to One, and Leave the Other Behind: The mayor made the following statement this past week regarding the pension case ruling suggesting the city may have to pay all but a few bucks of the $1.4 billion deficit:

“Some have offered a false choice between bankruptcy and a tax increase.”

He clearly doesn’t support either and insists he can deal with this monster off by raising fees and cutting employees and services. So far, it hasn’t happened and I haven’t seen the math that proves it pencils out.

The previous SDCERS actuary ran 15-year and 20-year amortization numbers showing additional hundreds of millions of dollars would be required every year.

The mayor claims his Five-Year Financial Plan is a “third choice” that will “put the city on an actuarially sound track to retire this debt within 20 years.” Twenty years!

We are not going into a Chapter 9 Bankruptcy for one basic reason.

Ready?

Chapters 9’s are for municipalities that are ready, and committed, to solve all their financial problems in one place and at one time. One “Plan.” It’s for cities ready to take back full control of their fiscal destiny. That is definitely NOT San Diego.

This city does not want to “solve” our financial problems now. Instead, we are content to “deal” with them over 20 years or likely more. This is the cruelest thing we can do to our people, our municipal employees, and our children.

But, it’s what we have done in the past. It’s how we deal with difficult things.

Why Won’t He Just Go to the Beach Like the Rest of Us?: While we have been having our café-lattés, sitting on our fannies and chatting up the pol’s, the San Diego Regional Economic Development Corp., the Chamber of Commerce, The San Diego Union-Tribuneor whomever, this odd guy Mike Aguirre has been fighting like a dog in a pit to rid us of billions of dollars of debt that not a one of us knew even existed a few years ago. Aguirre thought this was illegal and decided he would fight for us.

Who does he think he is anyway?

The U-T “dope-slapped” him big time on Saturday for trying to get a court to apply the law that precludes the creation of massive debt. They apparently dislike him so much they’d rather have us pay the billions off than have him be successful. What sense does that make?

The U-T solution is to freeze all municipal wages for fire and police for at least another half decade and outsource all other public services. Not certain that’s a practical solution – and even if it was, it seems a bit mean spirited. After all, we all have a skin in the game of getting this thing fixed.

voiceofsandiego.org told him to go quietly into the night. Don’t appeal. Give up. That’s what we do here in the big happy beach party.

There certainly must be some that yearn for the old, easy days of corruption and incompetence when we didn’t have to deal with all this stuff.

Maybe what we need to do now is just figure out how to pay for it all – like over two or three future lifetimes.

And, that will stop it from happening again. Right?

If we think like this, we will go from “America’s Finest City” to “Enron by the Sea” to “The Happiest and Dumbest City on Earth.” Please, let’s do better.

Merry Christmas.

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